By Katanga Johnson and Herbert Lash
WASHINGTON/NEW YORK (Reuters) -Global equity markets rose on Monday as investors await clarity from the U.S. Federal Reserve as to whether it will might raise interest rates sooner than they anticipated several months ago, before a sustained bout of inflation.
Wall Street advanced to record highs as gains for energy shares and Tesla were countered by declines in the tech sector only to stumble slightly lower, closing the session mixed. European stocks also hit record highs following upbeat earnings reports and a surge in banking shares.
The pan-European STOXX 600 index rose 0.71% and MSCI's gauge of stocks across the globe gained 0.44% as the multi-national mood was supported by Japan's post-election boost and stabilizing coal prices in China.
Harley-Davidson Inc shares jumped after the European Union removed retaliatory tariffs on U.S. products, including whiskey, power boats and company's motorcycles.
The euro zone bank sector touched its highest level in more than two years and was the day's best performer as bond yields surged on expectations the European Central Bank will hike rates next year. [GVD/EUR]
The Dow Jones Industrial Average rose 94.28 points, or 0.26%, to 35,913.84 after eclipsing 36,000 points for the first time ever during intraday trading. The S&P 500 gained 8.29 points, or 0.18%, to 4,613.67 while the Nasdaq Composite added 97.53 points, or 0.63%, to 15,595.92.
Japan's Nikkei rose 2.61% in early trades after Prime Minister Fumio Kishida's Liberal Democratic Party won an unexpected comfortable victory, raising hopes for political stability and stimulus in the term ahead.
The dollar drifted lower after posting its biggest daily rise in more than four months last Friday as hedge funds pared bearish bets before the Federal Reserve's policy meeting this week.
The Federal Reserve on Wednesday is expected to approve plans to scale back its $120 billion monthly bond-buying program put in place to support the economy, while investors will also be focused on commentary about interest rates and how sustained the recent surge in inflation is.
"This (meeting) is going to be a relatively big deal," said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. "We are expecting to hear the glide path for tapering the bond purchases.
"The market has to be on guard for a more aggressive, hawkish view from the Fed," said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Fed Chair Jerome Powell has said tapering would be over by mid-year 2022, which has been pegged as June, but that could also mean May, Chandler said.
The Reserve Bank of Australia meets on Tuesday, the Fed on Wednesday and the Bank of England on Thursday.
The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.326%, with the euro up 0.39% to $1.1605.
U.S. Treasury yields were mixed on Monday and German bond yields edged higher but trimmed earlier gains as investors retained their bets for two rate hikes from the ECB next year.
ECB President Christine Lagarde disappointed expectations of a firm pushback against the recent market pricing of two hikes next year, which are at odds with the bank's inflation outlook.
Benchmark 10-year notes last fell 1/32 in price to yield 1.5575%, from 1.556% late on Monday, while German 10-year yields slid to yield -0.099%.
"We may come out of (the) week past peak yield volatility, or at least, past peak rate hike fever," said NatWest Markets strategist John Briggs. "A lot of the things that went parabolic and took market rate hike expectations to a boil are at least looking like they are calming a bit."
Commodities stabilized with a further drop in Chinese coal prices pushing them 50% below last month's record high.
Swaps pricing points to a better-than-even chance of the BoE hiking on Thursday, while the RBA will likely make some sort of guidance adjustment after again declining to defend its yield target on Monday.
A survey on Monday showed U.S. manufacturing activity slowed in October, with all industries reporting record-long lead times for raw materials, indicating that stretched supply chains continued to constrain economic activity early in the fourth quarter.
And a U.S. Treasury Department-led regulatory body called for Congress to regulate issuers of "stablecoins" like banks and urged financial agencies to assess whether the role of these fast-growing digital assets in the country's payments system posed a systemic risk.
Oil prices settled higher on Monday as expectations of strong demand and a belief that a key producer group will not turn on the spigots too fast helped reverse initial losses caused by the release of fuel reserves by No. 1 world energy consumer China.
U.S. crude settled 0.6% higher at $84.05 per barrel and Brent closed at $84.71, up 1.2% on the day.
Spot gold added 0.6% to $1,792.63 an ounce. Bitcoin last fell 1.03% to $60,726.53.
(Reporting by Katanga Johnson on Washington and Herbert Lash in New York; Additional reporting by Danilo Masoni and Tom Westbrook; Editing by Subhranshu Sahu, Andrew Heavens, Barbara Lewis and Marguerita Choy)